In case you don’t know, the original version of Candy from Strangers contained a bunch of erroneous numbers. In preparing the piece, I got confused between the Fed flow of funds flow table (F.209) and the Fed flow of funds levels table (L.209). The Treasury Bulletin clearly states to use L209 and I used F.209, which contains quarterly data, annualized. Dividing the changes by four does not give you the same numbers you get from using simple subtraction on table L.209. Close, in most cases, (the household sector being a glaring exception), but not the same. I screwed up and I’m really sorry.
I’ve issued a corrected version of the piece, which I can only hope gets as far as the original did, and I certainly wouldn’t blame anyone who’s angry with me. The thought that I’ve added to the deluge of poorly-prepared information in the world embarrasses me beyond words.
All that said, I still stand 100% behind the core of the piece. The point was we really don’t know who’s buying US Treasuries these days. If it’s China, the insolvent banks, or the Fed itself, they are buying them anonymously and that should be sounding alarms. Other explanations are even more terrifying, but the notion that ordinary individuals are responsible for the purchases is laughable. None of that changes.
Less than two years ago it was discovered that the World’s largest hedge fund was a complete and total fraud (in fact, it wasn’t even registered as a hedge fund). Bernie Madoff turned himself in; he was never caught. For almost fifty years, he was treated like a magic unicorn on Wall Street. Sure, there were tons of articles about how obvious the fraud was after Bernie turned himself in and to all those “journalists,” I say thanks for nothing! You suck!
Only one person was convinced of Madoff’s true nature and had the stones to say so in no uncertain terms, Harry Markopolos. Everyone else involved was either pretending to understand that which they clearly did not (bobble-heads), or assisting Madoff by ignoring him (if you read Harry’s complaint to the SEC, it’s not much of a stretch to put Hank Paulson in the latter group). His book title says it all, No One Would Listen.
The Madoff scam ended in tears for his investors, but has somehow become little more than an over-used punchline to most of us. Not me, though. It is a testament to how corrupt we’ve let our system become, how little we care about fixing it, and how likely rampant theft is to continue. The very same people who allowed Madoff to thrive remain in power, undisgraced by their failure and in some cases, promoted for it.
As horrific as the SEC’s treatment of the Madoff scandal was, FINRA’s was even worse. Yet on January 22, 2009. Barack Obama appointed FINRA president Mary Schapiro to head the SEC. This was the first time I felt like Obama had hocked a loogie in my eye (if I were smarter, I’d have realized that is was actually the second loogie – Geithner being the first). I think she was picked for the job because of her inability to spot a Ponzi scheme (that is the closest thing she has to an achievement). FYI – Bernie has referred to Schapiro as a “dear friend.”
The lesson I take away from the Harry Markopolos story is how dangerous it is when people who should be asking questions pretend to understand. I can ask questions and I’m no bobble-head. That’s why I write. And while I would never criticize Harry, I wish that I had had the chance to hear his story before Madoff was forced to confess. In short, I wish he had been a blogger.
I’m no Harry Markopolos and everybody knows that. At best, I’m the kid pretending to be Spider-man with red underpants on his head. You’re supposed to laugh, but that doesn’t mean these stories have no relevance, or that you know the answers to the questions I ask.
So while I’m embarrassed by the stupid mistake I made in preparing “Candy from Strangers,” I’m not embarrassed for asking the question, “Who exactly is buying all these treasuries?” and I still don’t know the answer. Do you?